Highlights

  • Financial services regulators are taking steps to evaluate the ability of financial services institutions to meet the challenges presented by the spread of COVID-19 and support flexible work options, such as working from home, to help reduce effects of the outbreak.
  • For example, financial services institutions regulated by the New York State Department of Financial Services have received a series of four industry guidance letters requesting assurances about organizational preparedness to manage risks associated with the outbreak. To date, guidance has been issued from at least 12 states.
  • In particular, Connecticut, Oregon, Pennsylvania and Washington have taken positions of no action (or the equivalent) to allow workers who are otherwise required to work from licensed locations to work from home, such as mortgage loan originators.

As the United States and other countries around the world continue to fight the spread of the new coronavirus (COVID-19), financial services regulators are taking steps to evaluate the ability of financial services institutions to meet the challenges presented by the outbreak and support flexible work options, such as working from home, to help reduce effects of the outbreak. In the past few weeks, several regulators have issued guidance and monitoring alerts ranging from reminders and recommendations that financial institutions have appropriate business continuity plans in place to requests for information from financial institutions that will allow regulators to evaluate the business readiness of the institutions they regulate.

New York State Department of Financial Services Request

With that in mind, financial services institutions regulated by the New York State Department of Financial Services (DFS) received a series of four industry guidance letters, issued on March 10, 2020, addressed to chief executive officers (or equivalents). The letters request assurances about organizational preparedness to manage risks associated with the outbreak. The DFS also issued a circular letter seeking similar assurances from DFS-regulated insurance entities. Responses are requested as soon as possible (but in no event later than 30 days from the date of the letter), and the individual letters provide email addresses through which responses may be submitted.

Through the letters, the DFS requests, among other items:

  • information describing an institution's plan of preparedness to manage the risk of disruption to its services and operations, including preventative measures to avoid operational disruption, a documented strategy to scale outbreak responses in stages, an assessment of the potential for increased cyberattacks, employee protection strategies, assessment of service provider preparedness and a customer communication plan
  • information describing an institution's plan to assess and monitor financial risk related to the outbreak, including an assessment of the valuation of the assets and investments impacted, the overall impact of the outbreak on earnings, profits, capital and liquidity of the institution, and an assessment of reasonable and prudent steps to assist those adversely impacted by the outbreak
  • an assessment of 1) the credit risk ratings of customers, counterparties and business sectors impacted by the outbreak, 2) the credit exposure to such parties from lending, trading, investing, hedging and other financial transactions, and 3) the scope and size of the credits adversely impacted by the outbreak that are in or may move to non-performing/delinquent status
  • details around an institution's governance, oversight and testing of its risk preparedness plan to ensure that policies, processes and procedures are effective and that the plan is consistently updated with relevant information

Further, the DFS recognizes that the reduction in tourism caused by the outbreak will likely result in financial difficulties for small businesses, particularly those businesses located in the three main "Chinatowns" of New York City. The DFS provides guidance that regulated banks, credit unions and licensed lenders should consider all reasonable steps to assist small businesses affected by the outbreak, including offering payment accommodations, waiving late and overdraft fees, easing credit terms and proactively notifying affected customers of these accommodations.

Financial services institutions should review the letters carefully and respond as applicable to their organization. The New York DFS letters, titled as follows, can be located at the New York DFS website:

  1. Guidance to Department of Financial Services ("DFS") Regulated Institutions Engaged in Virtual Currency Business Activity and Request for Assurance Relating to Operational and Financial Risk Arising from the Outbreak of the Novel Coronavirus (COVID-19)
  2. Re: Guidance to New York State Regulated Banks, Credit Unions and Licensed Lenders Regarding Support for Businesses Impacted by the Novel Coronavirus
  3. Re: Guidance to New York State Regulated Institutions and Request for Assurance Relating to Potential Financial Risk Arising from the Outbreak of the Novel Coronavirus
  4. Re: Guidance to New York State Regulated Institutions and Request for Assurance of Operational Preparedness Relating to the Outbreak of the Novel Coronavirus
  5. Guidance to Department of Financial Services ("DFS") Regulated Insurance Entities and Request for Assurance Relating to Operational and Financial Risk Arising from the Outbreak of the Novel Coronavirus (COVID-19)

State Licensed Lender Workplace Flexibility

The New York DFS is just one of many regulators and other institutions providing regular updates and guidance related to the COVID-19 outbreak. To date, guidance has been issued from at least 12 states. In an effort to slow the spread of the outbreak, a number of financial services regulators have taken temporary steps to allow flexible work schedules and working from home. Particularly, Connecticut, Oregon, Pennsylvania and Washington have taken positions of no action (or equivalent) to allow workers who are otherwise required to work from licensed locations to work from home, such as mortgage loan originators. The Nationwide Multistate Licensing System (NMLS) has consolidated communications/guidance issued by state agencies to regulated licensees on the NMLS website.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.